The Top 100 Australian Public Companies Ranked in Descending order of Premium that is included in Their Share Price.
The Excel spreadsheet is ranked in descending order of Capital Growth Premium.
It includes
a detailed listing and also the summarised information in the following report. $110 Australian dollars
per person, including GST. The list does not include AMP
In purchasing the Excel List, you accept, acknowledge and agree that the list is a comparative and estimated ranking of premiums that exist in the share prices of the respective companies. They do not represent a valuation and you will not rely upon them for a valuation.
A valuation requires many elements including but not limited to projected
estimates of future NOPAT,
future capital employed and future cost of capital. Although these elements can
be inserted into the LinkVBM software they have not been included in the Excel listing. It is also important to realise that the
Issued Capital (and Number of Issued Shares) that we have used is as reported
at the respective Balance Date of Each Company (2001
year for the majority of the Companies).
Prior to making any buy, hold or sell decision on any company included in the list you
should consult a (your) licensed financial advisor for advice.
| 10% GST Included | |
| $AUD | |
| Top100 Australian Public Companies 2001 Year (Excel Listing) $AUD 110.00 per person (including GST) | |
| Top100 Australian Public Companies 2002 Year (Excel Listing) $AUD 110.00 per person (including GST) |
SOME OF YOUR BLUE CHIP SHARES ARE OVERPRICED
WHICH ONES SHOULD BE WATCHED AS THE 2002 RESULTS COME OUT?
With the current Reporting season under way it would be expected that an improvement in profit over the previous year would be greeted by a rise in share price. Roger Corbett of Woolworth’s could tell you that you can’t bet on it. A Profit can either be a profit or it isn’t, depending on the treatment of such items as revenue in advance, provisions, profits from sale of divisions and so on.
Value Based Accounting (VBA) on the other hand brings transactions back to Cash and so eliminates artificial NON Cash Flow Accounting Entries. Cash can not be disputed, you either have it or you don’t!
The measurement of discounted cash flow is a better indicator of performance and leads to some startling results when you apply this measure to the Top 100 Australian Public Companies, commonly called "Blue Chips".
Economic Solutions (SA) Pty Ltd, the designer of LinkVBM software in conjunction with Corporate $coreCard Pty Limited, supplier of both financial database and Debt Ranking System, have measured the results of the Top 100 Public Companies after adjusting reported accounts back to the True Economic Results (Cash Flow). They found that 26 of them, or 30% of the Market Capital of the Top100, have a $124 billion premium, out of a Total Market Value for this group of $ 213 Billion (an average 58% premium in their share price).
"Come on": You say, how could they have such large premiums?, these are big name stocks.
To enable the 26 companies mentioned above merely to remain at their "current share price" on the market they would have to increase Net Operating Profit After Tax, but before Interest (NOPAT) by an average of 16.87% per year for at least 10 years and then maintain this into perpetuity. This assumes no change in capital employed or the cost of capital. Two of the Top 4 Banks are in this range, along with some other very prominent companies.
How many companies have achieved
a growth of 16.87% over the
past 10 years? Very few. A quick look at Table 2 shows that of these 26 companies, only 7 increased
their NOPAT for the 2001 year and that the average change in 2001 NOPAT for the
26 companies was a Negative
$151 million. One has to ask what is holding their prices up?
In their 2001 results, one of these Banks
included $700million Profit from the reversal of Provisions that produces No
Future Cash Flow. We anticipate that their 2002 Results will not support the High
Premium built into their Share Price.
What does all this mean? It means that
if the 26 companies do not increase NOPAT by their expected increase (range is 9.6% to
63.8%) an average of 16.87% pa then it is possible that their Share Price may drop. Some of these price falls could be
substantial. Blue Chip does not necessarily mean without Market Risk.
The table below divides The 100 Top
Australian Companies into five Categories
(All calculations assume no future change
in capital employed or the cost of capital).
Category 1. Those in this category have
an almost impossible task but for their inclusion in Index Funds and face
a potential fall in Price, unless the NOPAT growth exceeds an average 16.87%
pa for the next 10 years (range
is 9.6% to 63.8%). This means that these Blue Chip stocks should be closely
monitored for potential falls in their Share Price.
Category 5 companies need a
marked
turn around (positive NOPAT) to survive. Unless there is clear indication of
a substantial turn around the Market will catch on to the true underlying lack
of CASH FLOW.
Category 2 companies need to grow NOPAT
by an average 7% for the next 10 years, (Average per annum NOPAT
Growth% range is 4.9% to 9.1%) in order
to substantiate their present market price. A big TASK but may be achievable with good
management.
Category 3 companies have a smaller
premium (Average per annum NOPAT
Growth% range is 0.12% to 4.70%) in their share prices. There are possible
bargains in this Group.
Category 4 companies show a possible
discount (Average
per annum NOPAT Growth% range is –0.02% to – 12.22% i.e.
NOPAT can decrease on average
4% and they can still substantiate their share price). There is likely to be some bargains in this
group. This Category includes some prominent companies.
Which companies then to buy, hold or sell? In a nutshell, That is the investor’s dilemma. In any event it will pay investors to look at the list that sheds some light on the calculated premium that exists in each company's share price. You should avoid being caught holding shares in a company where the current future predictions fall short of what is required in order to meet the LARGE premium in their share prices.
Growth Premiums (Figures in $’000,000’s) |
||||||||||
| Category | No of Companies | Selection Criteria Capital Growth Premium Range |
Percentage Of Market Value |
Market Value | Value of Future Growth | Average Capital Growth Premium% |
Average per annum Nopat Growth% Required for next 10 years |
Average Nopat 2001 year |
Average Economic Value Added |
Banks |
1 |
26 |
+50% | 30 |
212,682 |
124,111 |
58.36 |
16.87 |
319 |
-169 |
2 |
2 |
22 |
30%to50% | 19 |
135,636 |
52,829 |
38.95 |
7.01 |
318 |
66 |
3 |
3 |
33 |
0%to30% | 36 |
256,888 |
44,855 |
17.46 |
2.61 |
547 |
173 |
2 |
4 |
15 |
-136%to0% | 15 |
105,040 |
-17,490 |
-16.65 |
- 4.00 |
642 |
252 |
|
96 |
710,245 |
204,305 |
28.77 |
448 |
68 |
|||||
5 |
4 |
-VE Nopat | 1 |
7,083 |
10,698 |
151.04 |
101.64 |
-59 |
-161 |
|
100 |
100 |
717,328 |
215,003 |
29.97 |
427 |
59 |
||||
TABLE2: NOPAT (Figures in $’000,000’s) |
||||||
| No of Companies | Selection Criteria Capital Growth Premium Range |
Average Nopat 2001 year |
Average Nopat 2000 year |
Average Change in Nopat 2001 year |
Number of Co’s that Increased Nopat in 2001 Year |
Percentage Number of Co’s that Increased Nopat in 2001 Year |
26 |
+50% | 319 |
471 |
-151 |
7 |
27 |
22 |
30%to50% | 318 |
299 |
19 |
15 |
68 |
33 |
0%to30% | 547 |
444 |
103 |
25 |
76 |
15 |
-136%to0% | 642 |
576 |
66 |
11 |
73 |
96 |
448 |
439 |
9 |
|||
4 |
-VE Nopat | - 59 |
5 |
- 64 |
1 |
25 |
100 |
427 |
421 |
6 |
|||
Our LinkVBM software has been used to obtain the Value Based Data (Accounts). Value Based Accounts are obtained from currently reported financial statements after allowing for reversal of Non Cash Flow Accounting entries and allowing for other Economic Adjustments such as Capitalisation of Off Balance Sheet commitments including adjustment for the inherent interest component.
The main purpose in deriving Value Based Accounts is to obtain the true underlying Economic Returns, Costs and Capital Employed (invested).
Note that the accrual accounting system (debtors and creditors) is not reversed.
Some of the adjustments that are made to published accounts in order to obtain Value Based Accounts include
reversal of provisions
reversal of non recurring gains and losses on sale of assets
reversal of writing off of intangible assets
capitalisation of future off balance sheet items
The data has been supplied by Corporate Scorecard (Sydney), a Company that specialises in Financial Risk Rating Services (ZETA Rating System) and the provision of Public Company Data.
Note2: TerminologyNOPAT:
Net Operating Profit After Tax (excludes interest)Capital: = Debt plus Equity = Total Net Assets (excluding debt)
Value of Future Growth (VFG): This is the difference between the Value of the Entity (calculated by using the Market Price multiplied by the Number of Shares on Hand) and the Value of the Entity (calculated by using the Price of the Entity calculated if the last historical Nopat is continued in Perpetuity multiplied by the Number of Shares on Hand). VFG is the difference between the Market Capitalisation and the Value of the Company if the last Nopat continued in Perpetuity with no changes to Capital and WACC. This basically equates to the amount of Value that the Market is allocating to Future Growth.
Capital Growth Premium%: =(VFG/Market Value) *100 where Market Value is the Market Share Price *No Shares plus Debt and Other Balances.
NOPAT Indicator: NOPAT Indicator is the Percentage Increase (over a nominated number of future periods) in Net Operating Profit After Tax that is required in order to achieve the Value of Future Growth amount. This is assuming that its’ Cost of Capital and its Capital Employed stay constant at the same level (Company re-invests its depreciation and amortisation into Capital expenditure) and the final NOPAT figure achieved is maintained into perpetuity. This NOPAT in perpetuity figure may also include a "Growth in Perpetuity (%) factor.
Market Value: Market Share Price *No Shares plus Debt and Other Balances.
Economic Value Added: = NOPAT – WACC%*Capital Employed (where WACC% is the Weighted Average Cost of Capital and is the minimum rate of return on capital needed to compensate debt and equity investors for bearing risk).
MVA: Market Value Added is the Future Economic Value Added amounts (including final Economic Value Added in perpetuity) discounted back to present value at the Cost of Capital.
MVA Growth Premium% = (VFG/Required MVA)*100. Required MVA is the Amount that needs to be added to Capital Employed in order to equal the Market Value.
Free Cash Flow: NOPAT (for period)– Change in Capital (for period).
Valuation dynamics: Future Free Cash Flows discounted back to present Value at the Cost of
Capital for the period(s).
Contributed by Peter Cobiac, Economic Solutions (SA) Pty Limited
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